The pair has made a stunning recovery from seven-month lows, recently pausing its advance just below key technical resistance. As markets digest the incoming economic data from across the pond, traders are wondering what’s next for the pound! GBP/USD pair is trading above 1.3220 now. It hovers right under the descending 21-day Simple Moving Average (SMA), forming a hefty defense to any upside reversal.
The latest economic indicators paint a rosy continuation of the doom and gloom for the UK economy. With the unemployment rate rising to 5% in the three months leading to September, surpassing expectations of 4.9%, concerns about economic stability are increasing. Average wage growth is hanging tough, showing up at an inflation-adjusted 4.6% for Q3. This figure is slightly an improvement from last quarter’s 4.7%. This backdrop only deepens the mystery over GBP/USD’s direction in the months ahead.
According to market analysts, GBP/USD must begin closing above the 21-day SMA on a clear basis. Such a move is a key first step to reversing its short-term bearish bias. The next major supply area is between 1.3255 and 1.3280. Smart traders will monitor here the 200-day SMA at 1.3280, being a critical resistance.
Technical Analysis Highlights
The present trading scenario for GBP/USD represents significant technical signs that point to a bearish future. The duo, so far, finds itself stalling at a 21-day SMA of 1.3220. Traders consider this area to be an important threshold whose breach may indicate the start of a reversal. Should the price continue to maintain its momentum above this mark, it will pave way for a test against the following resistance territory. This area is found between 1.3255 and 1.3280.
That said, a inability to breach this moving average could solidify the bearish bias to GBP/USD. First, on the bearish side, immediate support is this week’s low of 1.3085. Should the currency pair break lower than this, it might reestablish the seven-month low of 1.3010 yet again. On the technical side, there’s more potential for optimism. Any progress will prove to be fleeting without significant economic uplift.
The 14-day Relative Strength Index (RSI) for GBP/USD currently hovers just above the oversold line around 41.50. This placement reflects the market remaining far under the midline, indicating the presence of strong bearish momentum to continue. Traders often use this indicator to look for potential reversals or continuations in market tendencies. In this case, that means they need to take a conservative view.
Economic Indicators Impacting GBP
As with all UK economic data, these figures have a huge impact on market sentiment towards the pound. The increase in the unemployment rate to 5% has surprised many economists and investors. This sharp increase is a surprise and adds to signs of fragility in the current labor market.
This latest decline hasn’t prevented average wage growth from staying remarkably strong. It logged a historic low rate of 4.6% for the third quarter, just ticked down from 4.7% in the three months prior to August. These impacts have made wage growth a key factor in consumer spending and the wellbeing of the economy, driving considerable weight in monetary policy decision making. A solid rebound in the job market will be key, analysts warn. Without this, we suspect that any sustained wage growth will struggle to prop up the strength of GBP in the face of climbing unemployment numbers.
So as traders continue to interpret these economic signals, all eyes will be closely watching to see what actions policymakers may take in response to these developments. The Bank of England’s next moves could significantly impact GBP/USD’s trajectory, especially if unemployment trends continue in an unfavorable direction.
Market Outlook
Going forward, the GBP/USD market will be watching to see how well the pair can trade under these adverse circumstances. The short-term trend still looks fragile, with downside potential still very much intact unless GBP/USD can clear the 21-day SMA convincingly. If it doesn’t manage to stay above the support level of 1.3085, it will probably break down. This would open the door for a re-test of the seven-month low at 1.3010.
The 50-day SMA currently at 1.3365. Traders should watch this signal very closely, as it may provide some of the best information about upcoming price movements. The combination of technical analysis and economic fundamentals will guide traders as they seek clarity in an uncertain market environment.